Z Gallerie Suffers Self-Inflicted Wounds, Files Chapter 22 Bankruptcy Case

Z Gallerie, LLC, a CA-based home furnishing and décor retailer with 76 stores nationwide, has filed for Chapter “22” protection in Delaware.

Committee Formation Meeting

The Committee formation meeting is set for Wednesday, March 20, 2019 at 10:00 a.m. at the Doubletree Hotel in Wilmington, DE. Be prepared for a high of 50, a low of 34, and scattered showers. (Not that the weather in LA will be much better…. a high of 66 and more showers).

How Did It Get Here?

Founded in 1979, Z Gallerie filed its first Chapter 11 case in 2009 in the aftermath of the Great Recession.  At that time the original founders, the Zieden siblings, reacquired the company.  In 2014, the Ziedens sold majority control of the company to its current owner, Brentwood Associates, in a $110 million leveraged buyout.  Subsequently, the company’s performance declined significantly, bringing it to where we are today.

Z Gallerie is one of several recent furniture retailers to seek bankruptcy protection, including retailer The Robert Allen Group and Heritage Home Group. But unlike other retailers, Z Gallerie did not fall victim to the “retailpocolypse” but to self-inflicted wounds. The good news? Management is confident that it has addressed its operational missteps and is well on the way to turning the company around. Among the issues?

  • A steep decline in revenues after the Brentwood acquisition.
  • Leverage and liquidity issues.
  • A failed expansion strategy.
  • Delay in launching an e-commerce platform.
  • The failed launch of a new distribution facility.
  • The loss of a major supplier.

In 2018, the company generated more than $200 million in sales.  But at the time of the filing, it had less than $2 million in cash on hand.  Running out of adequate cash to fund operations, Z Gallerie approached its prepetition lenders for additional liquidity but could not secure operating funds outside of a Chapter 11 process.


Imagining the future…. “Speed and cooperation” will determine whether Z Gallerie survives.

Where Is It Headed?

The Plan and Sale Process

Z Gallerie has secured $28 million in DIP financing commitments, conditioned on the company moving rapidly through the bankruptcy process.  To that end, Z Gallerie has already filed a “toggle plan” providing for either the marketing and sale of the company or a debt for equity swap “on terms to be determined.” The proposed timeframe is roughly as follows:

  • March 25: File disclosure statement.
  • April 12: Enter final DIP financing order, bid procedures order
  • April 19: Term sheets due from potential buyers.
  • May 7: If indications of interest are insufficient to pay off lenders, provide evidence of exit financing or execute a business plan that significantly reduces debt by aggressively shuttering stores.
  • May 7: Order approving disclosure statement.
  • May 16: Bid deadline.
  • May 20: Auction for substantially all assets.
  • May 29: Finalize asset purchase agreement.
  • June 17: Enter order confirming plan or approving sale.

The plan, however, is essentially a placeholder with significant gaps to be filled in. For example, treatment of critical trade claims and general unsecured claims is “to come.”

Store Closings

Meanwhile, the company is seeking to close up to 17 stores and requesting approval of streamlined procedures to conduct store closing sales.  It anticipates 59 go-forward locations (55 stores, two outlets, and two distribution centers).

The First Day Hearing

Z Gallerie’s financing, and other first-day relief, was approved at the first day hearing held today, Tuesday, March 12, at 3:30 p.m.

Mette K.

Avadel Pharma on the Bankruptcy Auction Block

Avadel Specialty Pharmaceuticals is one of three pharmaceutical companies to file for bankruptcy this week. The trio of healthcare companies included two pharmaceuticals companies – Novum Pharma and Avadel, both of which filed in pursuit of a sale process – and San Juan-based healthcare consulting firm, Navegar Network Alliance. Avadel’s filing comes as part of a broader restructuring of its publicly-traded, Dublin-based parent, which is currently undergoing an out-of-court restructuring to “right-size” its own headcount, reduce expenses, and improve profitability.

Avadel provides innovative medicines for chronic urological disorders. It has one commercial product, Noctiva™ , a prescription nasal spray used to prevent the kidneys from overproducing urine at night. Avadel claims this it is the first FDA-approved treatment proven to help adults with nocturia due to nocturnal polyuria. Here’s to a good night’s sleep!

A Quick Sale Process!

On Monday, Avadel filed a motion to approve procedures to sell its assets, allowing bids for any combination of assets (including just for its new drug application for Noctiva and its inventory or for only its Noctiva inventory).

Avadel hasn’t yet found a “stalking horse” buyer to make a first bid. But if it finds one, it may request approval of a breakup fee and bid protections. Bids, it proposes, will require a 10% deposit while overbids at auction must be at least $50,000. The sale process is likely to move forward at a rapid clip, with the following proposed deadlines:

  • Bid Procedures Hearing: March 13
  • Bid deadline: March 15
  • Selection of Qualified Bidders: March 18
  • Auction: March 19
  • Sale hearing: March 21

The company is working with Cassel Salpeter & Co. as investment banker.

How Did Avadel Get Here?

The company entered into an exclusive license and assignment agreement with Serenity Pharmaceuticals in September 2017. The agreement gave Avadel exclusive rights to develop, market and sell Noctiva in the U.S. and Canada. In exchange, Serenity walked away with two one-time payments totaling $70 million and royalties from product sales.

Despite significant time and investment, Avadel says that Noctiva has
underperformed since its launch due to resistance from healthcare professionals and concerns regarding potential risks for serious side effects. Due to these complications, among others, $80 million in additional investments since September 2017 have yielded less than $3 million in sales. Revised sales projections, it says, are “substantially below” the projections made in connection with its entry into the license and assignment agreement with Serenity.

Beginning in November of 2018, the company tried (and failed) to find a co-promotor for Noctiva, contacting 20 pharmaceutical companies and strategic buyers. It then tried to find a sublicensee, “discreetly” contacting potential parties. But none had completed diligence or discussed deal terms before the bankruptcy filing.

What Comes Next?

Avadel manages Noctiva’s production and distribution through third-party manufacturing, distribution, and supply agreements with such as its agreement with Renaissance Lakewood (f/k/a DPT Lakewood). Under Lakewood agreement, the company must purchase a minimum of 400,000 units of product each year regardless of need. If it falls short, Avadel has to make up the difference to Renaissance. Not expecting buyers to be interested in the contract, Avadel has filed a motion to reject it.

After the sale, Avadel intends to liquidate any remaining assets and wind down its remaining operations.

Mette K.

On the Bankruptcy Auction Block: Novum Pharma

Novum Pharma has filed for chapter 11 protection. The case is pending in the Delaware bankruptcy court under Case #19-10209.

Novum is a Chicago-based pharmaceutical company specializing in topical dermatology products. It has rights to 3 branded prescription dermatology products: Alcortin A (a fast acting fungicide), Quinja (a fungicide), and Novacort (a first-line treatment for pruritic dermatoses… caused by external hemorrhoids). If you are a regular follower, you know I like to add graphics to my posts. But I’m going pass on the illustrations and just note that I would go with the fast-acting options.

Novum reports approximately $20 million in assets, $35 million in current liabilities, and $18 million in long-term liabilities. Its goal? Preserving assets and conducting a bankruptcy sale. It intends to seek approval of bidding and sale procedures “in the early weeks” of its Chapter 11 Case.

The company attributes the bankruptcy to “(i) manufacturing hurdles leading to production delays and product ‘stock-outs’; (ii) a dispute with Cardinal and CVS regarding the price at which the Dermatology Products can be returned to the Debtor; (iii) managed care actions leading to increased prescription rejection rates for the Dermatology Products; and (iv) market dilution and decreased total prescriptions due to unauthorized generic alternatives being introduced into the market.”

For more background, you can download Novum’s bankruptcy petition, its global declaration, or the agenda for its first hearing scheduled for February 5th at 2:30 p.m. Additional information about the case is available free of charge from their claims agent, KCC, here.

Mette K.

Alcor Energy, LLC Seeks Chapter 11 Bankruptcy Protection

Alcor Energy, LLC commenced a Chapter 11 bankruptcy case in the District of Delaware on December 19, 2018.

Alcor Energy operates a portable turbine generator business.  Its core customers are oil and gas operators who rent generators to obtain power in remote places with limited access to conventional power grids.

Ultimately, many factors led to the deterioration of Alcor’s business performance. These include litigation claims, quality control issues, excessive operational and manufacturing costs, unprofitable customer contracts, deferred maintenance costs, and customer dissatisfaction. In the midst of these challenges, investor relationships also became strained.

To obtain an independent perspective, Alcor engaged Neil Gilmour III as an independent manager. Mr. Gilmour has extensive experience counseling companies through financial and operational turnarounds.  Together with other members of Alcor’s management, Mr. Gilmour determined that a Chapter 11 process would be Alcor’s best path forward.

Alcor has announced that it intends to file a small business plan of reorganization through which is funded debt to its lender, Ocho Ventura, LLC, will be cancelled, and the reorganized company will emerge as a significantly delevered enterprise. Ocho will receive 100% of the membership interests in the reorganized company, as well as deferred payment on a portion of the amounts owed to it, through a debt-for-equity swap.

The Debtor has asked that no official committee of unsecured creditors be appointed in this case.

The Case No. is 18-12839. Additional information about the bankruptcy filing can be found here.

Do you have questions or are you looking for additional information? Feel free to  contact me!

Mette K.

USA Gymnastics Seeks Bankruptcy Protection in #MeToo Fallout

Facing 100 lawsuits from more than 350 sexual-assault victims of team physician Larry Nassar, Indianapolis-based USA Gymnastics filed for chapter 11 protection today. The case is pending in the Bankruptcy Court for the Southern District of Indiana.

“We owe it to the survivors to resolve, fully and finally, claims based on the horrific acts of the past and, through this process, seek to expedite resolution and help them move forward,” said Kathryn Carson, the newly-elected chair of USA Gymnastics’ Board of Directors.  In addition, the Chapter 11 filing will put on hold the U.S. Olympic Committee’s effort to dismantle the sport’s governing body, according to Carson, providing “breathing room” for the organization to continue running the sport at a grassroots and national level.  The full press release is available here.

But as reported by NBC News, lawyer John Manly, who represents 180 alleged victims of Nassar, has this to say: “The leadership of USA Gymnastics has proven itself to be both morally and financially bankrupt” and the bankruptcy filing will block the victims’ “ongoing efforts to discover the truth about who at USA Gymnastics and the U.S. Olympic Committee knew about Nassar’s criminal conduct and failed to stop it.”

The case number is 18-09108.  The bankruptcy petition is available for download.

Mette K.